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Designing a new economy has major challenges politically. We want two major changes that actually aren't politically realistic in the current world where eight individuals own as much wealth as the poorest 50%. There is too much concentrated power.

If we want monetary reform it is unavailable at national level because there are simply too many bank lobbyists in the world's capitals who are spending far too much for any public interest lobbyists to match. Then again, if we want to replace

Then again, if we want to replace income tax with land tax, forget it. Not a goer either from a practical political viewpoint. No self respecting politician will touch it if taxing land reduces its market value and threatens a politician's votes.

What about getting a Basic Income and replacing the intrusive welfare system? Well that depends on how you would fund it. The problem is most of the current solutions are a drag on the economy. You must not fund it from GST which is regressive or from income tax which is a drag on the economy.You must fund it by sharing the rent on land and other monopolies.

Well where do we go then? You have painted a dismal picture.

Most respond by saying "Oh well bring A or B in gradually". That takes ages and moreover when A is implemented it affects B and C. So the idea of just imposing a 1% land tax and bringing it up gradually is quite impractical. We have to think in terms of whole systems. It is a whole system shift we need. Redesign the political economy from scratch.

The fact of the matter is that we must be politically savvy to come up with a solution. Many economists might agree that land tax is the most logical tax, but unless they are standing for office, they don't have to face the public. It is one thing to be an economist and another to be a politician. Victoria University's 2010 Tax Working Group which was stacked with economists from many government departments as well as consultants and academics, proposed a land tax. Did the government listen? Not that I can recall. I don't remember their recommendations on land tax being discussed in the public arena for more than a day.

What about Positive Money and all its followers saying that money should be spent into existence not lent into existence? They make a very good case, you can't fault it. And yes, the British Parliament took it seriously enough to have a parliamentary debate. But do you believe it will go further? You only have to read Nomi Prins book 'All the Presidents Bankers' to get an idea how close presidents have been to the big bankers for over a century. Hilary Clinton's campaign was funded by investment bankers and Trump has six Goldman Sachs bankers in his cabinet. He has already moved to get rid of the weak regulations they now have.

When considering the political feasibility of putting in the idea of Michael Kumhof and Jaromir Benes' Chicago Plan Revisited, a plan making bank debt illegal, Lietaer, Arnsperger, Goerner and Brunnhuber listed five reasons for not recommending it.[1]"1.Replacing a monoculture with a monoculture is not the way to generate diversity in exchange media.2. While it is true that a Chicago Plan reform would eliminate risk of widespread banking crashes and of sovereign debt crises, there would still be monetary crises.3. If governments were the only ones in charge of creating money there might be a risk of inflation. Such a risk is real and demonstrated in 2009 by the hyperinflation crippling the Zimbabwean dollar after President Mugabe instructed the central bank to print its currency by the trillions.4. The fourth reason can be summarised as ‘political realism’. Any version of the Chicago Plan will be fought to the death by the banking systems because it threatens both its power base and its business model. Even after the excesses triggering the 2007-8 collapse, or in the middle of the Great Depression of the 1930s, the banking lobby managed to deflect the implementation of any significant changes. In 2010, for every elected official in Washington, there were three high-level lobbyists working full-time for the banking system. The financial services industry including real estate spent $2.3 billion on Federal campaign contributions from 1990 to 2010, which was more than health care, energy, defence, agriculture and transportation industries combined." (In USA, according to Gar Alperovitz, in 2010-11 the FIRE section (finance, insurance, real estate) section spent nearly $1 billion in lobbying against bank regulation.)

"5. The final argument is about risk. Nationalising the money creation process cannot be done on a small pilot scale. It must be implemented on a massive, national scale or, in the case of the euro, a multinational scale. Any change always involves the risk of unintended consequences. Logically, large scale change involves greater risk."

Yes, there is a way to go. The ideas came from the permaculture teachers in our new economics movement. Reform the very structure of governance to give quite substantial powers to local government, turn governance upside down as well and then we might have a chance. The centralised governance structure must be replaced with distributed governance. Then we need to rethink the powers given to or claimed by local governance. In fact central government is not going to give very local government big powers like money creation, land ownership or revenue raising power, so they have to claim it themselves. This is where rebellion must be focussed.

So we have proposed spending money into existence at the very lowest level of government (in New Zealand that would be the Community Board). That money will gradually buy up land. The Community Board would then receive land rent from the property holder and pay the rates (local taxes) of that property holder. This process happens gradually, while closely monitoring inflation. If there is a sign of inflation, the rate of decay of money can be adjusted or the money spent at a higher level of governance.

So the Community Board claims the right to issue money, to buy land with that money, to receive public revenue. It could also impose certain resource rents to be determined.

With the growing revenue from land rent the Board would be able to distribute regular Citizens Dividends and build and maintain essential infrastructure.

There would have to be participatory budgeting so that the balance between infrastructure and dividends was maintained and the public was behind the Board.

Now if we are going to reclaim the right to issue money, we might as well design it properly while we have the chance. It is there we look to history and read Bernard Lietaer. He cites a period of 2000 years of a decaying Egyptian currency which had huge social, educational and economic benefits, 200 years of European currencies in the central middle ages that resulted in an age of prosperity, equality, high education and more leisure and finally a period in 1932-3 in a small Austrian town during the Great Depression. Each of these had a decaying currency, much as goods decay.

So the new money would be designed to decay. In practical terms, it would keep its face value but attract a regular payment to keep it valid. The local Board would develop a more equal relationship with its local Council who would inevitably end up accepting the new currency for rates. This would eventually pass on to central government who would have to accept it for taxes.

So what we propose is a new currency that soon is accepted by central government for taxes. This means it is a new national currency. They way this works out is that each local board keeps its currency from inflation so all are on a par. They flow into a stream that flows into a river towards central government.

I was privileged to speak with Emer O'Siochru of FEASTA recently. Twenty years ago she was a cofounder of the Irish Foundation for the Economics of Sustainability. She has campaigned for proportional representation. For three years she worked for a Site Value Tax but it was not successful. She is now working on Community Land Trusts.

We spoke about the challenge of connecting Community Land Trusts with local government so that local government could receive income from land rents. Suddenly there it was. She said in Dublin local government and central government owned a third of the land and so why couldn't that land all go into a Community Land Trust?

Imagine all of us trying that campaign together so that local government all over our countries would be lobbied to do this. Oh yes there would be obstacles. There will only be a few people you know, for instance, in your local Community Board area who understand that allowing property owners to profit from the rising value of their land is depriving society of its rightful income. So for a start there will only be a few to work with. But you only need three or four keen people.

The idea is that instead of Council selling off their land to developers, the council would continue to own the land but the lessee would be able to build a house on it. This is leasehold land. But every year the rent should be reassessed. This could be done by setting up a Land Rental Index to adjust the rent according to the change over that year. Our land is valued every three years anyway. All it means is that a sample of properties would be assessed for their annual rent. You start with an index of 100 and next year it might go up to 102 if there had been development in the district. Or if you live in Westport of Wairoa where land values are declining, the rental would drop.

The main obstacle the Council would raise in New Zealand would be that Council wouldn't know how to levy rates because it wouldn't know how much to charge. You see in the Kapiti Coast District Council where I live, rates are on Capital Value plus several Fixed Annual Charges for services. They wouldn't be able to separate out land from improvements. The rating system on Capital Value discourages building because the more you spend on building the bigger your rates bill. So some campaigner will stop at this point and work to change the rating system. Rating should be based on land value only or Unimproved Value. And fixed annual charges are regressive because the poor pay as much as the rich, which means it is a larger proportion of their income.

The advantage for lessees is that you only need to pay for the house not for the land. Since land comprises more than 60% of the property value in Auckland and usually over 40% in smaller areas, houses themselves become vastly more affordable. The lease would also have to be fair and it would be best for a 75 year period, a lifetime. It is just that the rent must be adjusted yearly to avoid any crazy leaps as in Auckland.

Of course this would all work better if the people who pay rent on their land are also able to escape income tax and GST. They go together. But this problem is for another day.

The average price for an Auckland home is now just over $1 million. The media focuses, as they usually do, on how impossible it is nowadays for young people to buy a house, with a side mention of how difficult it is for nurses, service workers and teachers to buy a house, and how the Auckland problem is spilling over to the entire country. There has also been a great deal of publicity in the last six months about homelessness, with a marae in Auckland shaming the Government into action by opening its doors to the homeless for the winter.

But there is another big issue that is almost never mentioned – the lost potential public revenue from land rent. Land rent is what the occupier would pay to the public if the public owned the land. Many have explained that the rise in value of homes is really the accumulated land rent over that period. It is also called the capital gain or unearned windfall.

Recent figures from Quotable Values New Zealand allow us to work out the on-paper profit for our country's homeowners and for Auckland's homeowners. This of course is just on-paper, but because it represents their realisable assets it does allow homeowners to do other things e.g. borrow more for other purposes. This calculation acknowledges that the figures are the houses that are sold only. Houses sold in that period were more like one tenth of the housing stock. But if my neighbour's house sells for $1million and ours is similar we know ours could sell for a similar price. Our house value is what a valuer would estimate or better still what the market would pay. Valuers value by looking at what did sell in the district and making comparisons. The bank recognises this as the value of our asset.

And the fact that I had a huge mortgage didn't really make any difference. Supposing I only have $200k and buy a $900k house, selling it a year later for $1 million. I make a profit of $100k because my deposit of $200k was turned into $300k.

Let's first take Auckland where the figures are the most dramatic.

House prices rose nearly 16% last year. The average uplift in Auckland house prices in that period was $138,781.

Since land values are created by the community around them, by the governments and communities that serve that site, the uplift belongs to the public purse. Rise in property prices are virtually all attributable to the rise in land prices. Schools, hospitals, infrastructure are built by government, central and local, and the private land owner reaps the profit. Businesses arrive, clubs start. Without a community around it, land has little value. (Even agriculture requires transport infrastructure. Land for conservation is usually publicly owned).

The total uplift for Auckland properties was 461,669 (the number of residential properties in Auckland Council) multiplied by $138,781, or $64 billion.

Now supposing this uplift was publicly captured month by month in the form of a full land rent, as it should be. What would the council do with it?

1. They could give half to the government straight away, leaving $32 billion.

2. They could put aside about $20 billion for infrastructure building and upgrading including rapid transit, and debt relief, leaving $12 billion still to be shared.

3. Sharing the rents is important. So the $12 billion could be given out as a Citizens Dividend to every man, woman and child in Auckland. The population of Auckland is about 1.58 million, making about $7,600 per person. For a family of five that would be $38,000.

That should help a few homeless families!

New Zealand homeowners are $138 billion richer than last year

There are at least 1,771,2000 residential homes in NZ (2013 census). The average uplift in NZ house prices was the difference between the Aug 2016 price and the August 2015 price, which as $78,196.

So multiplying these two, New Zealand homeowners on paper have assets worth about $138 billion more than last year. The tax take last year was $66.6 billion. So it is more than double the tax take. All this is privately captured when it really should be going to the state. In comparison to the $138 billion uplift for NZ, the GDP last year was about $170 billion.

However there are several political obstacles stopping us from applying these solutions in our current context:

• Aucklanders pay rates. However Auckland Council was introduced by legislation when amalgamation took place. This mandated that the rates were levied on capital values, thus requiring legislation for a change to rating system on land values. There is only miniscule awareness of this as a political issue.

• The viability these days of a centrally imposed land tax is not good, given the fact there are at least three bank lobbyists for every legislator and neoclassical economics is in full bloom. Nowadays the power of the landed and moneyed elite is so much greater in relation to the 99% than it has ever been.

• It has been legally impossible to impose land tax in NZ since 1992, though the PM seems not to know this because it was he that suggested putting a land tax on property bought by foreigners earlier in 2016. The idea died within a day or two. However this law could easily be reversed.

• No politician wanting to be re-elected would advocate a measure that was going to bring down house prices and leave homebuyers with negative equity. A 5-6% land tax would actually be for politicians and doing it gradually wouldn’t work either.

• Imposing a land value tax must go hand in hand with dropping of income tax so this has to be incorporated into the solution.

But all is not lost! The obstacles are not insuperable. Think about the untenable current situation of housing prices and its destructive consequences of widening the wealth gap. We have to start on other ground breaking solutions. Let’s be pioneering here.

A little history might give hope. New Zealand had a Liberal Government in the 1890s that imposed a land tax to break up big land holdings. Then it extended, but unfortunately it was at a higher rate per acre for large landholdings than for smaller ones, which was essentially unfair. This resulted in a new political party dominated by larger farmers. But land tax never reached more than 20% of the tax take, and income tax was gradually increased and extended. The same Liberal Government did however enact legislation to empower local government to hold a referendum where ratepayers could choose between land value rating systems and capital value. This was in place for 80 years and always resulted in the more equitable the public choosing land value rating systems. Cities like Wellington and Napier built on this rating system are compact.

If money buys lobbying power, then we have to be more strategic and try different tactics. This might point to governance reform giving much more power to local authorities and to even smaller governance units. Given that the banks have a vested interest in profiting from the buying and selling of land and from the private ownership of natural resources and infrastructure, a host of local innovative actions may be the surprise option. And this would require huge resistance from local communities that are determined to share land values and preserve natural resource values.

Maybe the old system should be left alone to collapse and die, and the new paradigm system reinvented at local level. We need to ask how land trusts can connect with localised governance units whose revenue is derived land and resource rents. But where would the money come from to buy the land? Maybe we need to create a local currency designed to circulate at an optimal speed. Maybe when there is surplus locally it can be steered from the periphery to the centre of government.

Certainly clever, innovative thinking is called for and it should be all hands on deck for that task!

The so-called discipline of economics has been systematically corrupted in two major ways: first to get rid of the word ‘land’ from the very language of economics and second to downplay, omit or misrepresent any discussion of the words ‘credit’, ‘banking’ and ‘money’. They shamelessly describe banks as intermediaries when they know this is a minor function and that bank’s major function is money creation.Fortunately the story behind the flagrant omission of land as a factor of production has now emerged, while the money story remains for some enterprising researcher in the future, (though various DVDs and stories hint in that direction).

The Corruption of Economics by Mason Gaffney and Fred Harrison, while free online, is hardly known; as of December 2015 only three New Zealand university libraries and the Auckland Public Library held copies. Yet in it is a very important story.

Fred Harrison describes the phenomenon of Henry George, the San Francisco journalist who took the world by storm with his book Progress and Poverty in 1879, in which he argues that the benefits of land ownership must be shared by all and that a single tax is needed to fund government –a land tax. The factors of production are land, capital and labour. Untax labour and tax land was the cry. Poverty could be beaten. Social justice was possible!

Of Henry George influential economic historian John Kenneth Galbraith writes,

In his time and even into the 1920s and 1930s Henry George was the most widely read of American economic writers both at home and in Europe. He was, indeed, one of the most widely read of Americans. Progress and Poverty… in various editions and reprintings… had a circulation in the millions.

Unlike many writers, Henry George didn’t stop there. He took his message of hope everywhere he could travel – across America and to England, New Zealand, Australia, Scotland and Ireland.He turned political. Seven years after his book came out in remote California, in 1886 he narrowly missed out on being elected Mayor of New York, outpolling Teddy Roosevelt.During the 1890s George, Henry George was the third most famous American, after Mark Twain and Thomas Edison. Ten years after Progress and Poverty he was influencing a radical wing of the British Liberal Party. He was read by semi-literate workers from Birmingham, Alabama to Liverpool, England. His Single Tax was understood by peasants in the remotest crofts of Scotland and Ireland.

Gaffney’s section of the book outlines how certain rich land barons, industrialists and bankers funded influential universities in America and proceeded to change the direction of their economics departments. He names names at every turn, wading through presidents and funders of many prestigious universities. In particular, Gaffney, an economist himself, names the economists boughtto discredit Henry George's theories, their debates with George and their papers written over many decades.

‘George’s ideas were carried worldwide by such towering figures as Lloyd George in England, Leo Tolstoy and Alexander Kerensky in Russia, Sun Yat-sen in China, hundreds of local and state and a few power national politicians in both Canada and the USA, Billy Hughes in Australia, Rolland O’Regan in New Zealand, Chaim Weizmann in Palestine, Francisco Madero in Mexico, and many others in Denmark, South Africa and around the world. In England Lloyd George’s budget speech of 1909 reads in part as though written by Henry George himself. Some of Winston Churchill’s speeches were written by Georgist ghosts.’

When he died there were 100,000 at his funeral.

The wealthy and influential just couldn’t let the dangerous ideas spread. Their privileged position was gravely threatened. Henry George must be stopped. But the strategy had to be subtle. What better route than by using their money to influence the supposed fount of all knowledge, the universities? That would then indoctrinate journalists and the general public. Nice one!

The story explains how, for their wealthy paymasters, academics corrupted the language to subsume land under capital as a factor of production. They redefined rent, and created a jargon to confuse public debate. Harrison says, ‘For a century they have taken people down blind alleys with abstract models and algebraic equations. Economics became detached from the real world in the course of the twentieth century.’

Yes, the wealthy paid money to buy scholars to pervert the science.

Gaffney’s rich, whimsical language is a joy to read. He writes to Harrison,

‘Systematic, universal brainwashing is the crime, tendentious mental conditioning calculated to mislead students, to impoverish their mental ability, to bend their minds to the service of a system that funnels power and wealth to a parasitic minority.’

He painstakingly describes the funding of various American universities by such figures as JP Morgan and John D Rockefeller who choose the President who obligingly appoints suitable head economists to key academic positions. Gaffney trawls through the writings of key figures in neoclassical economics over many decades, quoting numerous pieces attacking Henry George and his Single Tax proposal. Several neoclassical economists actually debated George in person. These early neoclassical economists were J B Clark, Philip Wicksteed, Alfred Marshall, ERA Seligman and Francis A Walker, who each contributed something to ‘addle, baffle, boggle and dazzle the laity’.J B Clark, for instance, has a bibliography that quotes at least 24 works directed against George over a span of 28 years.

Banker JP Morgan funnelled his wealth through Seth Low to Columbia University in New York, and John D Rockefeller did the same in Chicago. Ezra Cornell, who Gaffney says once held one million acres of land, creator of the Western Union Monopoly, founded Cornell University in Ithaca, New York State. Leland Stanford of Southern Pacific Railroad (really a land company), funded Stanford University. Johns Hopkins University in Baltimore, Maryland was endowed by Johns Hopkins, millionaire merchant and investor.

Each of these benefactors appointed their own president. Hopkins appointed Daniel Gilman as President. Out of that university came eleven Presidents of the American Economics Association. Gilman had a natural hatred of Henry George as he had been hounded out of Berkeley by the crusading young journalist when he uncovered ‘Gilman’s improper diversion of the Morrill Act funds.’

In his chapter entitled The Chicago School Poison, Gaffney writes:

John D Rockefeller funded Chicago spectacularly in 1892, and started raiding other campuses by raising salaries. Rockefeller picked the first President, William Rainey Harper. Harper picked the first economist, J Laurence Laughlin, from Andrew Dickson White’s Cornell (he liked Laughlin’s rigid conservative and anti-populist views. Harper drove out Veblen in 1906, then died, leaving Laughlin in charge of economics until he retired in 1916. He passed the torch to J. M. Clark, the son and collaborator of J.B.Clark. Frank Knight came to Chicago in 1917 from Laughlin’s Cornell. The apostolic succession is very clear from Rockefeller to Harper to Laughlin to Clark to Knight. …Chicago to this day is still the lengthened shadow of John D Rockefeller.

In terms of numbers, and intensity of feeling generated, Knight probably produced more neoclassical economists than anyone in history. He made no secret of his firm opposition to Henry George and ideas that might comfort Georgists. His enduring interest and his viewpoint are clear from the title “Fallacies in the Single Tax” (1953)

Who would have thought nowadays that Henry George had to be neutralised? After all, he wrote his books and did his public speaking and touring from 1870 to 1897.

It was in these five Universities that neoclassical economics developed to the stage where it has almost completely taken over from classical economics, and it was out of these universities that the American Association of Economists was founded in 1885 by Ely, Walker, Edwin Seligman and others. He notes they did not welcome ‘reformers’.

In addition, Richard Ely retired after a long career a John Hopkins University, to establish what he called The Institute for Research in Land and Public Utilities whose purpose was ‘to investigate all problems connected with land taxation’. Contributors included utilities, railways, building and loan associations, land companies, lumbermen, farmers, bankers, lawyers and insurance men.

At least two of these academics were wealthy – E R A Seligman of Columbia came from a wealthy banking family. Richard Ely, who was known as the ‘Dean of American economists,’ was a well-connected land speculator, making a small fortune in Wisconsin real estate. He spent his life rationalising land speculation.

To give you another taste of Gaffney (take a big breath): ‘To most modern readers, probably George seems too minor a figure to have warranted such an extreme reaction. This impression is a measure of the neo-classicals’ success; it is what they sought to make of him. It took a generation, but by 1930 they had succeeded in reducing him in the public mind. In the process of succeeding, however, they emasculated the discipline, impoverished economic thought, muddled the minds of countless students, rationalised free-riding by landowners, took dignity from labour, rationalised chronic unemployment, hobbled us with today’s counterproductive tax tangle, marginalised the obvious alternative system of public finance, shattered our sense of community, subverted a rising economic democracy for the benefit of rent-takers and led us into becoming an increasingly nasty and dangerously divided plutocracy.’

Let’s turn a blind eye to money too

The omission of the words credit, banking and money or the downright distortion of facts in university teaching was also no accident. The publishing in 1906 of Silvio Gesell’s book The Natural Economic Order sparked a decades-long movement. Gesell has been described by Irving Fisher as a ‘strangely neglected prophet’. John Maynard Keynes wrote, ‘I believe that the future will learn more from the spirit of Gesell than from that of Marx.’

For centuries American politicians and British politicians had been treating money creation as a political issue.Thomas Jefferson and Abraham Lincoln are two who knew that banks create money. But after the arrival of neoclassical economics in the late nineteenth century, things started to change. To please the banks who profit from land ownership, mention of the words ‘money’, ‘credit’ and ‘banking’ was also omitted, especially after the widespread influence of both Major CH Douglas from the 1920s and Silvio Gesell’s advocacy of a decaying currency. It was a bit worrying for banks that the Social Credit Party in New Zealand won 12% of the vote in 1953. So a Royal Commission on Banking and Credit was set up. In 1956 it found that banks were ‘banks of issue as well as banks of deposit’. However, thanks to their spin doctors, politicians theirmanaged to misrepresent the findings well enough for the public to believe the Commission had ruled the opposite. Who knows what mischief went on behind the scenes? Universities fell into line. Academic teaching on money creation was reduced to a brazenly inaccurate paragraph or two, misleading generations of students. But money is really created by private banks as interest-bearing debt. This writes in a growth imperative, ensuring we depend on exponentially growing debt and continue to monetise and privatise the commons.

If universities are a vehicle for spreading misinformation about how money is created we can more easily understand the simple and chilling statement of Mayer Amschel Rothschild , “Let me issue and control a nation's money and I care not who writes the laws.”

Predicting the Global Financial Crisis

The corruption of economics in universities is no trivial matter. Economic crises are serious matter involving loss of homes, savings and jobs and economists need the right tools to predict them so they can deal with them. Tragically only a handful of economists predicted the Global Financial Crisis of 2007-8 and the Queen of England was known to ask, ‘Why didn’t anyone see this coming?’ Professor Steve Keen in his book Debunking Economics spends a chapter summarising the work of a Dutch economist, Dr Dirk Bezemer. After laying down certain criteria for selection, he concludes there were only 12 (two published together). He named Dean Baker, Wynne Godley, Fred Harrison (UK), Michael Hudson, Eric Janszen, Steve Keen (Australia), Jakob Madsen & Jens Kjaer Sørensen (Denmark), Kurt Richebächer, Nouriel Roubini, Peter Schiff and Robert Shiller. Subsequently Bezemer had the list at three dozen, but out of a total profession of at least 20,000 it is a very dismal record. If any other profession (e.g medicine) was so wrong in something that affected millions they would be sued. The universities who train economists should hang their heads in shame.

Hyman Minsky claimed that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in turn produces a financial crisis. He said we moved from a hedging stage where risk is low to a speculative stage and finally to a Ponzi stage. A key indicator was the growth of private debt as a fraction of GDP. The “Bezemer 12” quoted above had in common that they were concerned with the distinction between the financial economy (making money from money) and the real economy. Keen wrote in 2009, “Unfortunately after the crisis everything being done by policy makers around the world is instead trying to restart private borrowing.” Sadly Wikipedia notes that while Minsky's theories have enjoyed some popularity, they have had little influence in mainstream economics or in central bank policy.

These same people are among those now warning of a very much larger international financial collapse, as debt deflation takes hold and ongoing globalisation locks the global economy ever more tightly together. Economics is too important to be left to mistaught economists. The absence of good, reality-based economic theory in education leaves millions of environmental and social activists – along with the compassionate right – to flounder about helplessly trying to solve growing inequality and the climate crisis.

Challenging the universitiesTackling the veracity of university teaching in economics is no job for a quitter. In 2013 a retired engineer started on a mission when he read the Bank of England paper on money creation. Peter Morgan wrote to the Vice-Chancellor of Auckland University, Professor Ananish Chaudhuri:

‘The textbook used by the University of Auckland for its macroeconomics courses is Principles of Macroeconomics in New Zealand, by N. Gregory Mankiw, Debasis Bandyopadhyay and Paul Wooding. It contains several statements that are unequivocally fallacious. By way of example – by no means the only one in the textbook – the following is an example:

“Financial intermediaries are financial institutions through which savers can indirectly provide funds to borrowers.”’

He went on to quote from both the Royal Commission on Banking and Credit in New Zealand in 1956, but mostly from the Bank of England papers e.g. Banks are not intermediaries of loanable funds – and why this matters by Zoltan Jakab and Michael Kumhof

Back came his answer:-

“Dear Mr Morgan:

Thank you for your recent letter to the Vice Chancellor which has now been sent on to me via the Dean of the Business School.

First of all, thank you for taking the time to write.

I begin by noting that the questions you have raised go to the heart of the debate raging around the world. There is no question that in the aftermath of the GFC, the state of macroeconomics globally is in a flux with possibly more questions than answers. As you must be well aware leading scholars as well as policy makers are currently engaged in a robust debate world-wide particularly as Greece and Germany enter into a stare-down which may result in the break-up of the European currency union.

Having said that let me make a few points:

First, the textbook at issue is the most popular textbook world-wide including most leading institutions of higher learning. Greg Mankiw is a leading scholar, a professor at Harvard (which I believe also teaches from this text) and was Chairman of George W. Bush’s Council of Economic Advisors. I expect that he is well aware of the state of the art in terms of both the theory and policy-making. There are local editions of this book written by leading scholars in those countries. The Australian edition was done by Joshua Gans of Melbourne and Stephen King (till recently Dean at Monash Business School). Their role is to provide a local perspective and local data but the major intellectual force is provided by Mankiw. It is important to understand that the scholarship in this area is still very much evolving and therefore a plausible counter-argument is that no matter which text-book we choose to use, it will suffer from some flaws and deficiencies.

Second, while authors do their best to keep up with evolving knowledge nevertheless it takes time to update textbook content, at least partly because it takes time to understand and absorb the lessons of history. As I noted above the state of macroeconomics is in a flux and new research needs to be integrated into future editions.

Third, I would disagree that the book contains fundamental errors. I think this may have more to do with differences in assumptions and philosophies rather than violations of some universally held truths. We and indeed all scholars welcome robust debate on such differences. They are part and parcel of the academic discourse. As the VC has already pointed out, at the end of the day, this is also an issue of academic freedom. I have absolutely no reservations about the use of this textbook in our degree program.”

So having acknowledged that economists have spent a fruitless seven years scratching their heads about what caused the GFC, or the crisis in Greece, the Head of Department, Professor Chaudhuri puts this major issue aside and declares the book valuable. He justifies using a textbook with fundamental inaccuracies by saying other universities are doing it too! In a subsequent letter he confesses that he is not an expert in monetary policy. They often do that –claim they are not a macroeconomist. This is rather like the head of a medical school saying he is not an expert in medicine or the head of an architecture school saying he is not an expert in building design. The sheer nerve of senior economists to think that they don’t need to come to grips with monetary policy when the world is awash with debt would be incomprehensible if one didn’t know their very jobs depend on their pulling the party line. Money is at the heart of economic life.

Perhaps we can get some clarity from Steve Keen here. In a 2014 blog, he explains the three options open to universities after the 2014 Bank of England paper that refuted the loanable funds model. ‘Now if I believed in the tooth fairy, I would hope this emphatic denunciation of the textbook model would cause macroeconomics lecturers to drastically revise their lectures for next week. But I’m too long in the tooth to have such a delusion. They’ll ignore it instead. Their dominant “tactic” – if I can call it that – will be ignorance itself: most economics lecturers won’t even know that the bank’s paper exists, and they will continue to teach from whatever textbook bible they’ve chosen to inflict upon their students. A secondary one will be to know of it, but ignore it, as they’ve ignored countless critiques of mainstream economics before. The third arrow in the quill, if they are challenged by students about it (hint hint!), will be to argue that the textbook story is a “useful parable” for beginning students, and a more realistic version is introduced in more advanced courses.’

He seriously doubts if the paper will cause senior economists to change their current position and explains that until you know that banks can create and cancel money, you will never be able to understand how demand rises and falls. ‘All the parables of conventional economics fly out the window once you know this. The level of economic activity now depends on the lending decisions of banks (and the repayment decisions of borrowers). If banks lend more rapidly, or if borrowers repay more slowly, there will be a boom; if the reverse, there will be a slump. If new loans simply make up for old ones being repaid, then there is no effect, but if new loans exceed repayment then aggregate demand will increase.’

The urgency of getting this right

If universities are failing us by misleading our young people, journalists and politicians, think how critical it is to reverse this. Naomi Klein says that the climate crisis came along at the just the wrong time – when neoclassical economics was at its zenith. No wonder there was a reluctance to do anything meaningful as it simply clashed with the dominant economic paradigm. She says, ‘Economics is at war with the planet’. According to many experts there is only a small window to reverse climate change, until 2017.

There is a long way to go to reverse public thinking. Neoclassical (or neoliberal) economics has a death like grip on us. In over a century the doctrine has succeeded in further privatising the commons, dismantling the state,deregulating everything that moves and fooling the public over land and money. The economic theory that ignores the role of money and debt can’t possibly make sense of the economy in which we live. It should be jettisoned.

While the collapse of the global economy will be terribly painful and chaotic, it will certainly reduce carbon emissions dramatically. But as long as the economy holds up we need to get on our bikes and work. Whatever happens, no future economy should have the flaws we have now. It is time to get cracking, or as the sheep farmers of the South Island of New Zealand say – rattle our dags.We can do it.

Do universities lead advances in economics?

During depressions great thinking is done, sometimes in universities, but more often not. Henry George, a journalist, wrote Progress and Poverty in response to abject poverty in San Francisco (1879 book), Silvio Gesell, a German businessman, wrote after an Argentinian depression of the 1880 and 1890s and John Maynard Keynes wrote after the Great Depression of the 1930s. As we descend into worldwide debt deflation today’s searchers now must urgently find and implement a new economic model. And that will involve a huge shift in thinking.

Keynes suggestions were widely adopted after the Great Depression. In 1933-4 Gesell’s currency was put into practice in a small town in Austria with spectacular results. People came from all over Europe to witness the ‘miracle of Wørgl’.But it lasted a mere fifteen months, cut short by the influence of big banks over the Austrian government at the time, who made the ‘work certificates’ illegal. So despite considerable influence for three decades for his important thinking on currency design (a currency must only act as a medium of exchange and must rot like potatoes and rust like iron), Gesell is now all but forgotten. As central bankers grope helplessly for tools to stimulate the economy at the same time as controlling inflation, Gesell presents answers.

Gaffney’s description of how land barons, industrialists and bankers perverted university’s teaching, which in turn leads towrong government policy, is reminiscent of the story of the history of banking. Banks have been a powerful influence on governments ever since governments allowed banks to create credit that could be used to pay taxes. This may have happened in Europe centuries ago after the goldsmiths.

To add to our troubles universities, under the influence of neoclassical economists, have all but stopped teaching economic history so no one can study Gesell or George.

The tie-up between universities and neoclassical economists also influences the relationship of politicians to bankers. Nomi Prins in her landmark book All the Presidents Bankers sheds light on the symbiotic relationship of a century of American presidents with the top bankers of the country, and how elite bankers can even dictate foreign policy. The dust cover of her book says she ‘ushers us into the intimate world of exclusive clubs, vacation spots, and Ivy League universities that binds presidents and financiers. She unravels the multi-generational blood, intermarriage, and protege relationships that have confined national influence to a privileged cluster of people. These families and individuals recycle their power through elected office and private channels in Washington, DC.’

Bankers admit they create money

Of course the bankers themselves know better than the universities who prefer to be complicit in keeping the secret. Graham Towers, Governor of the Bank of Canada and Lord Josiah Stamp of the Bank of England have been quoted regularly in the monetary reform literature. Even in New Zealand in 1955 we had H W White, Chairman of the Associated Banks telling the Royal Commission on Banking and Credit:

“The banks do create money. They have been doing it for a long time, but they didn't realise it, and they did not admit it.”

The meshing together of Georgism with monetary reform remains a challenge, especially for ardent individuals who claim their cause to be the most critical. I have heard monetary reformers say Georgism is irrelevant and I have even heard a Georgist describe monetary reform as "heresy" and declare it must be "exorcised" at all costs. Then there are the moderates who say Georgism is more important than monetary reform but willingly acknowledge monetary reform is needed. Critics come in many varieties. Regrettably there is a tendency for advocates from both sides tend to promise a growing list of wonderful results from their reform. Maybe Henry George School people only see landlords as “the enemy,” and to mention money, credit and bankers confuses them. Do we see people on both sides arguing that the others should just get off their territory?

Recently I heard a Georgist argue that if you transfer land into community ownership then the money issue disappears.

So let's tease this one out. To some extent he is right, but he misses several vital factors. For instance he doesn't appear to understand the growth imperative will still be present, so he needs to work out where the excess money will go, and follow the results to their logical conclusion.

Take the important book Money and Sustainability, The Missing Link, a Club of Rome Report by Bernard Lietaer, Christian Arnsperger, Sally Goerner and Stefan Brunnhuber. The authors say there are five results of creating money as interest-bearing debt – amplification of boom and bust cycles, short-term thinking, compulsory growth, and devaluation of social capital where selfish behaviour replaces co-operative behaviour.

Or take another example of monetary reformers overpromising. While we can't tell if she actually believes it herself or not, monetary reformer Amanda Vickers lists their extravagant promises. She writes in the Otaki Mail, "Sovereign money advocates extrapolate further that the outcome would also be far-reaching throughout our economy and our lives. They say it could also improve: the inequality gap, child poverty, housing bubble control, student debt, state asset sales, job security, local businesses performance (due to the 10% higher output gains), budgets for local community projects and facilities, health care and education."

Positive Money in their little video says money is created every time someone takes out a mortgage. The money doesn't come from someone else's saving but is new money just created. The bank enters your debt as an asset on their accounts then enters the same amount in the liabilities column of their books, your deposit. The entire money supply is on loan from the banking system. When they charge interest on this money creation £200 billion a year is transferred from the public to the financial sector every year in UK. Since money is created as interest-bearing debt, if we all pay off our debts the current economic system would collapse. There would be no money in the system.The debt can never be repaid. The money creating power needs to be transferred to some democratically accountable body and spent into existence instead. He mentioned it has been pumped into property bubbles and financial markets.

They claim it would reduce inflation and that you would also be able to move towards a low carbon society this way.

So what I take out of this is that Positive Money people, by not addressing tax reform, may think that if you create money by spending it into existence you will avoid rising land prices. By creating a monetary authority to control inflation they give their new monetary authority magic power to stop money going into a land bubble. It simpley wouldn't happen this way.

So let's go back to the Georgist's claim that when you have land in community ownership the money issue disappears. Not so. If you continue to create money as interest bearing debt, then money still moves from the public to the financial sector. Though there is always the personal desire to pay off your debt the money supply would disappear if everyone did this. Moreover, there is always the mathematical imperative for the money supply to grow in order to pay off the debt with interest. That is what we don't want on a finite planet.

It is true that when there is either no cost or little cost on the holding of land AND money is created without interest or with low interest, you get money pouring into land inflation. Anyone who has paid a mortgage knows that when interest rates decline, there is what they call a housing bubble (it is really a land price bubble). This is undesirable. And if you take land out of the market entirely money won't go into a land bubble, but it will go into some other form of monopoly.

When Karl Fitzgerald of Prosper Australia did his 2013 study Total Resource Rents of Australia, he subtitled it "Harnessing the Power of Monopoly." The list includes Land Residential, Land Commercial, Land rural, Land other, Subsoil Minerals, Oil and Gas, Water Rights, Taxi Licences, Airports, Utilities, Fishing, Forestry, Gambling, EMS, Satellite Orbit Rights, Internet Infrastructure, Domain Name Registration licence, Banking Licences, Corporate Commons Fee, Patents, Parking fees, Public Transport, Liquor Licences, Vehicle Rego Licences, Sin Taxes on Tobacco and Alcohol, Carbon Taxes, Non Tax Revenue (sale of goods). That's quite a list of the things you can claim a monopoly right on. "Land" in its widest sense is actually a list this long and longer.

So if we just deal to land by taking it out of the marketplace, you just put your money into monopolising another part of the commons. You could buy a much desired personalised number plate. The plate "F1" fetched £14 m and the number plate with the number 1 was bought by an Emirati businessman for £7.25m in 2008. Perhaps you could buy a domain name? Sex.com sold in Nov 2014 for $10m and insurance.com in 2010 for $35.6m.

Or the extra money could go into the financial sector including securities, commodities, venture capital, private equity, hedge funds, trusts, and other investment activities like investment banking). Nothing productive here. Yale economics professor Robert Schiller says, "The classic example of rent-seeking is that of a feudal lord who installs a chain across a river that flows through his land and then hires a collector to charge passing boats a fee (or rent of the section of the river for a few minutes) to lower the chain. There is nothing productive about the chain or the collector. The lord has made no improvements to the river and is helping nobody in any way, directly or indirectly, except himself. All he is doing is finding a way to make money from something that used to be free. If enough lords along the river follow suit, its use may be severely curtailed." Yet that is where a lot of money and activity is going.

In June 2015 the Guardian reported that "Adair Turner, the former chair of the Financial Services Authority, gave a memorable critique of the UK financial services industry in the wake of the credit crisis when he said that some of the activities carried out by the City’s finance firms were “socially useless”."

There are many places where the excess money can go if there is tax reform but no monetary reform. We haven't even touched on fishing quotas, art investments, oil and gas, utilities, or forestry. Leaving the growth imperative firmly in place by leaving money created as interest bearing debt will invite trouble and plenty of it.

However there is no doubt that land price inflation would disappear if all land was owned communally and leased from a public entity instead. While the boom-bust cycles would exist for other parts of the commons that remain in the market place, these cycles would no longer be present for land prices.

As Professor Michael Hudson explains "In a nutshell,land rent today is paid out as mortgage interest. Ditto for oil and gas, and monopolies.In terms of reform, financial and tax reform must go together. What is not taxed will be capitalized into bank loans. That’s the basic message."

In one of Michael Hudson's papers he quotes from Tolstoy when discussing the issue with Henry George. "The land cultivator in a bad year, not being able to pay the rent exacted from him by force, would have to enslave himself to the man with money in order to keep his land and not lose everything."

The architects who own the two Titirangi sections with the precious kauri and rimu trees on them should have their land bought by the Local Board and the rent should be reduced because of the restrictions they suffer in building, according to the New Economics Party.

Spokesperson Deirdre Kent said the tree issue in Titirangi is a graphic example of why land ownership should progressively move into public ownership. Local Boards should have power to create a second national currency to buy up community land. And if the use of the land is restricted because of historic building, conservation of trees or building height limits, the rent should be reduced as the part of the land already serves a public purpose.

The land rent should be in lieu of rates and the revenue shared by other levels of government.
She said if the Auckland Council (preferably the Local Board if it had the power) buys this land destined for low cost housing there will be four beneficial outcomes:
1. The trees can be saved
2. the housing produced will be genuinely low cost because the cost of the land will not be included into the cost of the housing
3. the citizens Auckland will enjoy a dividend from the land rental in perpetuity
4. The citizens of New Zealand will enjoy a more bouyant economy as lower cost of housing results in lower mortgage payments therefore less interest payments and less bank profits streaming across the Tasman to Australia.
“The financing of land purchase on a large scale is eminently possible. It is only political will that is needed to create a second national currency that can be spent into existence through land purchase by councils,” said Ms Kent

Anyone notice that 20-22% of schoolchildren in New Zealand are hungry every day? What has this to do with the recent sale by Auckland Council of the most valuable property in the country to a private company, Precinct Properties?

Well, plenty. Let me explain. If Mayor Len Brown had played Monopoly enough as a kid he would know that the way to get rich is to buy properties. Well, read "buy land" actually. When a representative of Precinct Properties spoke on National radio tonight he was open when he said, “Our emphasis is on owning land freehold” Of course. “Freehold” means “free of rent”. How nice.

So instead of leasing the land to a developer, the Auckland Council has sold 2 acres of the most valuable land in the country and thinks it has done a deal. But the "deal" is really Precinct Properties 100: Council 0. Precinct Properties knows it because they know the City Rail Link is about to start and the uplift in land value is theirs to capture – and other land owners near the hubs.

It is not news that land near rapid transit hubs will rise in value. When the Jubilee Line Extension was built in London in the late 1990s, it was discovered that the uplift in land values of properties within 1000 m of a hub was £13 billion. The cost of the extension was a mere £3.5 billion. Yes, that means private landowners get windfall gains from public expenditure. The public loses all round and windfall gains are all privately collected by “freehold” land “owners”. Nice. Thanks!

It's not a coincidence the sale happened right now. Auckland Council was busting to start the link but delays were frustrating them. Imagine the Precinct Properties smooth talk to gullible Mayor Len Brown: “If you let us buy the QE11 Square we will build a wonderful new building and attract huge expansion in Auckland. It will also enable you to start the City Rail Link.” "Wonderful," says Len. And he thinks: "Just what I want. People will remember me as the one who got the City Rail Link and did so much for the development of Auckland."

Of course there will be development. The start of the rail link is just what landowners near the City Rail Link hubs are hanging out for.

Our party says we need more land in public ownership, not less. In fact there should be a law against selling public land. If the government or council want to have land utilised it should lease the land never sell it.

OK, that is at the moment dreaming, as all the momentum is exactly in the other direction.

But there is a partial and realistic solution – get land owners in the area to share part of their windfall gain with the council so the council can gradually pay off the loan to build the link. It can be done through targetted rates under the law. Targetted rates are used extensively by Wellington Regional Council and by almost every council. It is only a fraction of the windfall gains in land value that is targetted. And this is politically acceptable. People understand that they should share their gain with the public purse. If a landowner benefits from public spending they should pay higher rates. Spread over 20 years, it will pay a significant proportion of the cost of the City Rail Link. The Sydney Harbour Bridge and the Melbourne Rail Link were partially funded this way. The process is called Land Value Capture and it exists in various forms all over the world.

So what has this got to do with hungry children? Remember the Campbell Live recently showed that of one class of 28 Year 11 students at Decile 2 Kelson Girls College, 18 of them didn’t have lunch and ten came to school with no breakfast. 8 had no breakfast and no lunch. “Many students are needy. Their parents are really struggling to make ends meet,” said the school principal.

When people and businesses with the most valuable land (think central Auckland) have a windfall rise in land value, money that rightly belongs to the whole public flows into the coffers of the land “owners”. Businesses like Precinct Properties. The propaganda is that it is owned by mums and dads, yes very wealthy mums and dads, but mostly big investors like insurance companies and pension funds. Calculations earlier show that every year the public is deprived of something like $37 billion through the uplift in land values that occurs with development. A real estate agent last week told a friend in Howick that values there were rising by $15,000 a month and he could see no end to it.

Yet the "mums and dads" of the Year 11 students at Kelston Girls College are paying rates or rents and often catching buses to work two jobs. Mostly they will be renting. They won’t be getting any unearned windfall from the uplift in land values. That is how people get rich, not by working. Wherever you find a really rich person or company you will know they are landowners who have received unearned gains from rising land values.